HDFC Mutual Fund files for low volatility ETF

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Following the launch of hedged funds such as Kotak India Growth Fund Series 4 and IIFL Capital Enhancer Fund, HDFC Mutual Fund has come up with its own offering aimed at nervous Indian investors, named HDFC Low Volatility ETF. It has filed papers with SEBI for the ‘Low Volatility ETF’ which will invest in companies with low volatility (in other words, supposedly ‘less risky’ companies).

The ETF will track the S&P BSE Low Vol Index. The S&P BSE tracks the 30 companies with the lowest volatility (measured by standard deviation) in the S&P BSE LargeMidCap Index. The LargeMidCap Index (not a typo) is a combination of the S&P BSE Large Cap and S&P BSE Midcap and is designed to encompass 85% of the total market capitalisation of listed companies.

As of June 29th, 2018 the S&P BSE Low Vol Index had one-year returns of 18%, three-year returns of 13.9% (CAGR) and five-year returns of 19.9% (CAGR). The index is rebalanced twice a year – in March and September. It is dominated by Nestle India, M&M, HUL, Kotak Mahindra Bank and Power Grid Corp.

The HDFC Low Volatility ETF will invest 95% of its assets in securities covered by this index. This target index will also be the benchmark for the scheme. Krishan Kumar Daga who manages other HDFC ETFs will be the fund manager. An ETF being a passive tracking instrument depends relatively less on its fund manager. As is generally the case with ETFs, it will be an open-ended scheme. The minimum application amount during the NFO period is Rs 5,000.

How to apply

You can apply for units directly from the fund house at NFO stage. You need a demat and trading account for this and your application will follow the ASBA route (with funds being blocked to the extent of subscription). You can also buy units after the fund is launched on the stock market through your trading account. You then hold them in your demat account. However, you cannot buy units directly from the fund house after launch except in very large quantities.